Fact Finding and More
As OEMs and suppliers do a matingdance, following the right stepsgoes a long way toward forming
a good working relationship.
Commitment to quality.
Culture of innovation.
Customer of choice.
When it comes to how relationships between OEMs and contract suppliers of outsourced services are established and nurtured, these phrases have a common thread—and not just because they all start with the same letter of the alphabet.
Medical Product Outsourcing continued the discussion that was begun in the October issue on the rituals involved in arriving at a working relationship between customer and supplier, and found that people coming from both sides of the issue share many similar thoughts when it comes to what attracts companies to one another and how that attraction then is fanned into a real, live business engagement.
There’s a new feel to the mating dance as suppliers make themselves known to OEMs through a variety of ways. Of course, Internet search clearly has surged to the front, but one of the best still is the old standby—word of mouth.
And for their part, suppliers want to know all they can about how a potential customer operates, how it manages its supplier relationships and especially, what it is it hoping to accomplish with the product in question. So diligence right up front is important for both sides, while conscientious communication helps keep projects on track.
Different Approaches Are Required
Folkert Bölger, senior vice president and chief purchasing officer, supply management at Philips Healthcare, in Best, the Netherlands, said there really are two different types of approaches to the supplier-choice question—one for standard, commodity-type components, another for what he termed “innovations.”
“What we always do is look at what the requirements are for a component or a product or a subassembly, and first we look into our preferred and strategic supply base,” he said. “But when you talk about innovations, we scout much more broadly, and we look from a functional requirement perspective to find suppliers who can meet that or have innovations which we do not yet use.”
Philips’ goal, Bölger said, is to build and leverage a superior supplier network.
“In doing that you organize yourself around categories, and you have your preferred and strategic suppliers which you build a relationship with and with whom you know their performance,” he said.
With a new supplier, one of the first areas of question involves a type of classification: Is the company certified already? Does it have the right certifications from a compliance or regulatory point of view?
A commitment to quality is an important element right up front.
“We have our own audit tool—a supplier engagement audit tool—with numerous questions as to their quality management systems. We don’t engage with new suppliers unless we have a quality contract signed,” he said.
In the vetting process itself, Bölger noted that the steps aren’t always sequential and some things are done on parallel tracks.
“Before we have the next milestone where we really agree on a new project, we need to have the audits done, we need to have the quality agreements done, we need to have the terms and conditions fixed,” he said.
He noted that Philips has supplier market intelligence teams in countries where the company has a limited footprint or perhaps none at all, such as Japan, Korea or Taiwan.
“We do screenings. We do supplier carousels, where we invite suppliers to present their capabilities, their technologies,” he said. “We also invite suppliers in during supplier days or supplier quality workshops, where we engage with them to get a better understanding of their capabilities.”
With a new provider, Philips gives them a self-assessment tool and then conducts an audit.
“We explain to them the engagement and . . . the expectations in terms of performance, in terms of delivery, quality, support and price,” Bölger said.
He called it a risk-based approach, meaning that part of the introductory effort “depends on the type of component—if the supplier is delivering a high-risk component in terms of quality and safety, we have a heavier process that we follow, and also in terms of incoming inspection or reports that we need from them in order to get the purchase on to approval.”
In order to make the experience the best that it can be, Bölger says he challenges the company’s suppliers to become a supplier of choice.“We don’t treat them just as a supplier, but also want to understand what they see in us as a customer.”
So Philips asks, “How would they rate us as a customer? Are we a customer of choice, or are we just a customer to gain some revenue?” He added: “If you start looking from a supplier’s point of view at how you behave as a customer, then I think you really get to the true partnership.”
He said it’s important to provide the supplier with all the knowledge it needs to make the project happen.
“When you involve them too late in your development process, you miss opportunities to learn from them. We need to make sure that we understand their capabilities, but they also provide input on what they can deliver. It isn’t a one-way street.”
Working in a regulated industry adds to the challenge, Bölger said, but he offered a succinct summation: “Most of the issues around a regulated industry are that we can write wonderful procedures, but if we don’t execute on those procedures, then you have compliance issues, so we audit our suppliers on that.”
Seeing Both Sides
Tom Black, vice president, OEM and International Division sales and marketing at B. Braun Medical in Bethlehem, Pa., works for a company that straddles both sides of the OEM/supplier relationship. A well-known global medical products manufacturer in its own right, B. Braun contracts with many outside suppliers, but also provides outsourcing services to other OEMs on alarge scale.
Black said the fact that his company is an OEM itself adds to what it can bring to the outsourcing equation, especially in terms of potential customers knowing of B. Braun’s capabilities.
When it comes to any selection process a potential customer might be following, he told MPO: “My thinking is that they would know us. We’ve been doing this for a long time, so we’re well-known from the OEM standpoint. They know of our ability to provide them with the full range of products and services that they’re looking for. A lot of new customers might be people who have left a company that we worked with, so they know us from that.”
In establishing a new relationship, he said, he encourages new customers to visit their facilities and conduct a “soft” audit.
“It wouldn’t be a formal documentation audit like companies do all the time,” Black said. “It would be more along the lines of come in, get a general feel of what our quality system is all about, our manufacturing floor, how we are structured within the organization, all the different disciplines, see all the product and non-product things that we offer.”
Black said while customers are “kicking the tires,” more importantly, they’re meeting key people.
“You can have a system in place, but you need to meet the people who are running the system and get an indication of what their dedication is,” he said. “From there, you can build a relationship off of that.”
At the same time, B. Braun does its own vetting of thecustomer in order to gat a better idea how the fit is going to be.
“We want to know how fierce are they about this project, how healthy are they from a financial perspective, and who they may be competing against,” he said. “We have to get a feel for whether this is a project that we feel is long-term and want to take on.”
Black noted that key questions to ask customers are: What’s the purpose of this product? What do you have in mind for it?
“That’s a must, even if you’re only supplying a component,” he explained. “We do a risk analysis, based on what we feel is risky on the project moving forward and on product use. We need to know what the product is being used for because a lot of times that may change how we go about manufacturing it.”
The process may involve doing a bit of educating of a new customer, especially if it’s a smaller company with less experience in outsourcing relationships.
“We do that to show that we have all of these capabilities,” Black said. “Our motto is ‘sharing expertise,’ so part of the selling is not just the product itself, but our capabilities. Because we also sell direct, we have our own line and we have our own experiences that come from manufacturing those products, so we’re able to share that expertise with them.”
He said the most important key to clients having a good experience is “constant communication; you need to be upfront with them. You try to get to where it’s seamless—you’re supplying them product, and it’s as if they’re talking to one of their own units internally. That requires communication.”
As for dealing with regulatory mechanisms, Black said, “a lot more demands are being placed on the outsourcing partner because of the demands of the U.S. Food and Drug Administration (FDA). It is a challenge, because there’s a lot of gray area in dealing with the FDA, but we just need to ask them right up front, ‘What do you need from us to meet your regulatory requirements?’”
Asking Questions Brings Better Answers
At Celestica Inc., a Toronto, Canada-based global provider of a full range of product lifecycle solutions, the approach taken to a new customer or supplier relationship is as varied as the broad menu of services the company offers, Sandra Ketchen, vice president of Celestica HealthTech, said.
Every customer is unique, Ketchen said. Some OEMs just look for a transactional relationships, while others are looking for true, long-term partnerships. The type of relationship depends on what is being outsourced.
“Are they an early stage company looking to outsource their entire engineering and operations arm, or are they just looking for some specific assembly or design expertise? What’s their level of maturity with outsourcing? Some of our customers who are very mature in their engagements will have very specific reasons or thoughts about what they want to achieve, and there are others who have never done this before, so they are going through it for the first time.”
Ketchen said, “For some, cost is the primary driver, while for others, it’s greater supply-chain flexibility. In other cases, it may be that they are looking for leadership and expertise in design.”
She said, “It’s important that the relationship is set up in the right way at the outset. We coach the OEM through the process, while they coach us on their lifecycle and key drivers. Open and honest communication enables success.”
MPO mentioned a Q&A posted on celesticahealthtech.com that contains two particular concepts the company sees as key in establishing new relationships: Is there a “culture of innovation” at the OEM, and is “collaboration” embraced?
Ketchen said, “Of the company relationships that I have been involved with, the ones that were most successful could be described by those two concepts. It takes a relationship where both sides are open to challenging each other to drive continuous improvement, so even though the engagement may start off with the customer saying, ‘Okay partner, we just want you to build this particular product,’ the true measure of a relationship is what happens beyond that first task.”
She noted that the vetting done by a supplier is just as important as the process an OEM follows in selecting contract suppliers. “We’re looking for partnerships that will be long-term and collaborative. Situations where it’s really just transaction-based are less aligned with our business model. We want to be in a position where we continue to deliver incremental value year over year to those companies.”
Ketchen told MPO that the business-to-business model fundamentally hinges on solid relationships.
“The experience is going to be better the more a customer knows they are getting a customer-focused, customized solution for their business—not just a ‘little fish in a big pond’ type of scenario,” she said. “When two organizations have alignment around common goals, the relationship will be successful and the experience will be a good one.”
Celestica has a function inside the company known as a “solutions architect,” which she said is different than a sales role. Solutions architects are charged with understanding what the customer is looking for in the given situation they are in and proposing a solution. The are responsible for “determining what it looks like, what it costs and the pros and cons of the potential different options.
The process really revolves around that customer/solution architect engagement,” she explained.
A Two-Way Process
Brian Jarvis, vice president marketing for BIT Companies, a global provider of instrumentation and system development, contract manufacturing and after-sale service for in-vitro diagnostic and medical OEM clients, said that “if an OEM contacts us, we know that we’ve made it to their short list. In our experience, OEMs perform their due diligence with regard to qualifying supplier candidates prior to contact. They research us electronically and narrow down the selections based on core competency and ability to meet specific demands.”
Once that initial contact is made, Jarvis sees the process as going both ways.
“We interview each other to see if there is a good match,” he said. “We have our own internal qualification process where we strive to qualify the OEM. It doesn’t do either party any good if the demands and core competencies don’t match; and it can cost both companies time and money, so it’s critical that both the OEM and the vendor are open and clear. If we don’t feel good about the match, then we have to refuse the project. We say ‘no’ to many more projects than we say ‘yes’ to for that reason.”
As for the project engagement itself, Jarvis noted that “one of the first things we do right up front is execute non-disclosure agreements (NDA), because the most important and critical part of our process is confidentiality. Until that NDA is signed, the conversation is very generic.
“From that opening generic discussion, we can establish that this device is a fit—it’s in the right industry space, it’s in the right market, we know that to make that device will require high-end mechanics, electronics, fluidics, optics which are core competencies for us. Then it makes sense to execute an NDA so we can talk specifics. At that point, we have discovered their level of competence and knowledge in their own requirements. “
One of BIT’s first questions is: How are you going to make it through the financial jungle of product development and execute it to market success? Jarvis said that typically is the leanest area of a start-up company.
“The scientist who has a really brilliant solution may not have the marketing or financial wherewithal to get to the end result. It’s a hard reality. Sometimes the best ideas die on the table because those two areas—marketing and financial—aren’t there,” he said.
Providing a great customer experience “starts with the match-up and qualifications,” he said. “We try to get the match right, then if we’re the right company, it falls into place. We have to agree on the words ‘fair’ and ‘value’ as they apply to price because there’s a budget in mind which drives the entire project. The hard reality is that if the number doesn’t fit the solutions within their model, we don’t get the project.”
Jarvis added: “We try to establish not only a technology match, but very early on, a reasonable expectation of value. Not necessarily ‘How much do you want this instrument to cost?’but more‘What is the value? What’s the market? What’s your model?’”
As for regulatory issues, he put it concisely: “You have to be compliant, registered, listed—quality is not an option. If there’s change at the FDA, it may slow us down, but it slows down our competitors as well, and ultimately the unfortunate part is that it slows down improvements ultimately getting to the patient.”
Defining Differentiators is Key
CEO Carl Martin of Advanced Scientifics Inc., a Millersburg, Pa.-based maker of single-use systems for use in diagnostic, lab, pharmaceutical and biopharmaceutical applications that until recently was known as Advanced Scientifics, cited the importance of vendors having clearly definable differentiators.
“As an example ASI is an injection molder, as are a thousand other competitors. However, we also do assembly, packaging, and sterilizing services, which puts us in a much smaller group of competitors,” he said. “As is the case with any vendor, we are looking for programs in our sweet spot. Development efforts, program size, product details—shoot-and-ship molding vs. packaged sterile assembly, resins used, process and equipment utilized—all are considerations to the relationship.”
Martin noted that OEMs “likewise will have a stable of service companies they work with for a variety of reasons and criteria they offer.”
He termed the getting-to-know-you process “a dance that takes place at both ends. An OEM may see a supplier as a good fit for design and development, but want to do the manufacturing in-house.
“We may see doing the design portion as a means to get production within our own manufacturing environment, but we must be up-front about our expectations for the relationship.”
Martin said, “The more there is an understanding of expectations and responsibilities upfront, the better. The worst situation I have seen was when we were not part of the design but were expected to produce a high-quality product. The customer in this situation was not willing to take our advice on a ‘substandard’ design, but a vendor cannot manufacture quality into a deficient design.” Such circumstances “can be averted with good communication regarding responsibilities and expectations.”
He said it’s important to have “a detailed discussion regarding the program, timelines, difficulties, other vendor supply details, liabilities—i.e., failure mode analysis. It is best to discuss the points prior to a lot of time going into the effort, only to find it is not a good fit.”
Martin said that the regulatory impact on outsourcing vendors “is continuing to grow.” That in turn leads to the timing to product launch also getting longer. “This can get frustrating to all parties concerned,” Martin said.
Jim Stommen, retired editor of industry publication Medical Device Daily, is a freelance writer focusing on the medical products sector.